"Trending Title Topics from Around the Country" This webcast will begin promptly at 12:00 PM EST Follow Steptoe & Johnson on Twitter: @Steptoe_Johnson ALSO FIND US ON http://www.linkedin.com/companies/216795 2017 Steptoe & Johnson PLLC. All Rights Reserved.
Today s Presenters Benedict J. Kirchner Steptoe & Johnson PLLC 201 Chestnut St, Suite 200 Meadville, PA 16335 benedict.kirchner@steptoe johnson.com 814 333 4910 Diana S. Prulhiere Steptoe & Johnson PLLC Dominion Towers 600 17 th Street, Ste. 2300 South Denver, CO 80202 diana.prulhiere@steptoe johnson.com 303 389 4365 Matthew S. Schlensker Steptoe & Johnson PLLC 10001 Woodloch Forest Dr., Suite 300 The Woodlands, TX 77380 matt.schlensker@steptoe johnson.com 281 203 5776
Pennsylvania
Recent PA Case Law Herder Spring Hunting Club v. Keller, No. 5 MAP 2015, 143 A.3d 358, 2016 WL 3909038 (Pa. July 19, 2016) Title washing N. Forests II, Inc. v. Keta Realty Co., 130 A.3d 19 (Pa. Super. Ct. December 4, 2015) Adequacy of service
Dunham Rule A rebuttable presumption that a grant or reservation of minerals does not include oil or gas and oil or gas does not include the other. In the opinion issued April 24, 2013, Butler v. Charles Powers Estate ex rel. Warren, 620 Pa. 1, 65 A.3d 885, the Supreme Court of Pennsylvania reaffirmed the Dunham Rule, holding that a reservation of minerals in a deed does not reserve the gas in unconventional formations, such as the Marcellus Shale.
Title Washing A conveys Tract 1 to B, excepting and reserving the oil and gas A = severed oil and gas B = surface estate B fails to pay taxes Treasurer sells Tract 1 in Tax Sale to B (or B s agent, who eventually sells it to B) A is divested of interest in the oil and gas B has title to the surface and oil and gas
Hutchinson v. Kline, 199 Pa. 564 (Pa. 1901) 1892 Tax Sale in Elk County, parcel which was subject to a prior oil and gas severance Holding: Grantee acquired title to the surface and previously severed O&G estate (even though the purchaser at Tax Sale was also the owner of the surface estate) Considerations: Unseated land and unassessed O&G No Duty between Surface owner and Severed O&G Owner
Herder Spring Hunting Club v. Keller Facts: Kellers reserved the oil and gas in a tract of unseated land in 1899 The oil and gas was not separately assessed The assessed surface tract was sold at treasurer s sale for delinquent taxes in 1935 Keller heirs and Herder Spring Hunting Club both claimed the severed oil and gas interests
Herder Holding Title washes are still the law in PA The Supreme Court concluded that if neither the Kellers nor the purchasers in 1899 notified the county commissioners, the tax assessment would cover the entire warrant. Rejected the Keller heirs claims that the 1936 deed only conveyed the surface and that the reserved rights had no value in 1935. The Court noted the Keller heirs failed to challenge the Tax Sale during the two year redemption period, as required by the Act of 1815.
Herder Holding The 1935 Tax Sale conveyed the severed subsurface estate formerly held by the Kellers. Notice by publication under the Act of 1815 did not violate the Keller heirs due process rights due to the difficulties in ascertaining the ownership of unseated lands and the right to redeem the property after sale, even under the due process analysis of Mennonite Bd. of Missions v. Adams, 462 U.S. 791 (1983). The 1959 deed did not reserve any interest, since at the time the prior reservation had already been extinguished.
Title Washing Take Aways To have a title wash: 1) Must be an O&G severance 2) Must be for unseated land 3) O&G must not be separately assessed 4) Must be prior to 1947 when the distinction between seated and unseated land was abolished by passage of the Real Estate Tax Sale Law. 72 P.S. 5860.101 et seq. 5) Usually in North Central PA
N. Forests II, Inc. v. Keta Realty Co. Facts: Northern Forests acquired 3,665 surface acres June 24, 1987 1988: Surface owner files a quiet title action based upon adverse possession of the timber and minerals Notice was served by publication 1989: Default judgment in favor of the Plaintiff 2012 and 2013: grantees and lessee filed petitions to strike or open the 1989 default judgment, claiming that the default judgment was void, as indispensable parties were not part of the action and that counsel s affidavit was insufficient to support notice by publication
N. Forests Holding Superior Court concluded that the 1989 judgment was jurisdictionally defective because the surface owner failed to join indispensable party subsurface property owners. Rejected plaintiff s contention that naming successors and assigns of former owners was sufficient for due process. Judgment was defective because counsel s affidavit was facially insufficient under Civil Procedure Rule 430 in that it failed to specify what efforts were made to locate defendants. (citing Orman v. Mortgage I.T., 118 A.3d 403, 406 407, (Pa. Super. Ct. 2015)
N. Forests Holding The Court roundly rejected arguments that the passage of time should bar the court from striking the judgment: Unlike fine wine, void judgments in Pennsylvania do not improve with age; void ab initio, void for all time. The Superior Court also affirmed dismissal of plaintiff s claims of adverse possession, holding that adverse title to oil and gas can only be achieved by actual possession, meaning drilling and production of the minerals.
N. Forests Take Away If you want to serve by publication in PA, you must provide proof of an extensive and nearly exhaustive search for heirs, successors, and assigns
PA s Dormant Oil and Gas Act The Pennsylvania Dormant Oil and Gas Act of 2006 (58 P.S. 701.1 et seq.), which provides for the creation of trusts to receive payments owing to unascertainable owners of oil and gas interests
Ohio
Recent Ohio Case Law Corban v. Chesapeake Exploration, L.L.C., Slip Opinion No. 2016 Ohio 5796 Given guidance on how to interpret the interplay of the 1989 and 2006 versions of the ODMA
1989 Dormant Mineral Act ORC 5301.56 Provides a process for reuniting severed oil and gas interests with surface estate 20 year requirement 7
The Old Version of the Act 1989 Version Automatic divestiture of the severed O&G if: A. In the last 20 years; B. No title transaction; C. No production (or pooled production); D. No storage; E. No separate assessment; F. No claim to preserve; and G. Not owned by state.
2006 Dormant Mineral Act All of the same criteria of the 1989 act must be met, plus new notice requirements Became effective June 30, 2006
Ohio s Dormant Mineral Act Unlike the 1989 version, the 2006 version actually has detailed notice requirements: Surface owner sends notice by certified mail, return receipt requested, to mineral interest owner at last known address If such notice not received, publish once in a paper of general circulation At least 30, but not later than 60, days after service or publication, surface owner files affidavit of abandonment in recorder s office 2
Ohio s Dormant Mineral Act Mineral interest owner has 60 days from service of notice by mail or publication to either file a claim to preserve interest or an affidavit identifying one of the saving events in the 20 years prior to notice After 60 days with no filing by mineral interest owner, surface owner directs the county recorder to memorialize the abandonment on the record for the mineral interest being abandoned 2
CONCLUSION This was a very sticky area of Ohio Law The Ohio Supreme Court had been silent July 1, 1986 was an important date Lower courts had been split over their treatment of the ODMA
Corban v. Chesapeake The Ohio Supreme Court answered the following certified question of state law from the U.S. District Court for the Southern District of Ohio: Does the 2006 version or the 1989 version of the [Dormant Mineral Act] apply to claims asserted after 2006 alleging that the rights to oil, gas, and other minerals automatically vested in the surface land holder prior to the 2006 amendments as a result of abandonment?
Corban Holding The answer: 1. 2006 applies to all claims after June 30, 2006 2. 1989 Act is not self executing 3. 2006 applies to all claims prospectively, regardless of time of the severance
Walker v. Shondrick Nau Slip Opinion No. 2016 Ohio 5793 A mineral interest is preserved where its holder follows the 2006 DMA recording requirements. Lower court held mineral interest abandoned on March 22, 1992 No court action by surface owner Conclusion: Minerals are preserved
Albanese v. Batman & Lipperman v. Batman Slip Opinion No. 2016 Ohio 5814 Mineral interest is not abandoned where surface owner asserted 1989 DMA claim after june 30, 2006, but did not comply with 2006 dma s notice and recording requirements. Surface owners had filed claim under 1989 Act Did not comply with 2006 Act Conclusion: Minerals are preserved
Albanese v. Batman & Lipperman v. Batman { 30} We learned in oral argument that the root of the Batman interest came from bartering undertaken by Nile Batman s great greatgrandfather, a dentist who traded dental care for interests in his patients mineral rights; he put them in dentures and they gave him indentures. Hopefully, there were no hard fillings. Now his patience with those mineral rights has paid off for his progeny, a crowning achievement, even if the prices for the commodities involved have receded somewhat from their crest. Somewhere, the good doctor is smiling, knowing that ancient fees owed for drilling and extractions have been paid many times over by fees paid for drilling and extraction. He wouldn t care that the 1989 ODMA has been rendered toothless. Justice Pfeifer dissent
Dodd v. Croskey (2015) 143 Ohio St.3d 293, 2015 Ohio 2362 Surface owner initiates 2006 process Mineral owner files preservation notice Conclusion: Minerals are preserved
Conclusion Corban held to the contrary. In doing so, Corban has simplified the law. All it took was rewriting it. Justice Pfeifer, Walker v. Nau dissent
Corban Take Away Make sure to take a long look at all title opinions that have an ODMA issue In the A&D context do not agree to rely on said title opinions Apply the 2006 version to all ODMA claims going forward
Dundics v. Eric Petroleum Corp., 2017 Ohio 640 Case handed down February 17, 2017 Ohio 7 th District Court of Appeals Rules that landmen need to be licensed real estate brokers to receive compensation
West Virginia
WV: Mineral vs. Royalty Grant or reservation of a 1/8 royalty interest in the oil & gas Usually gives a full fee interest Grant or reservation of a 1/16 royalty interest Usually gives a one half (1/2) fee interest Depends on year and precise language Above rules generally apply pre 1963 Source: http://www.digitaltopo maps.com/countymap/west virginia.shtml
WV: Mineral vs. Royalty The confusion in the West Virginia cases makes it dangerous to assert that the transfer of a share of royalty, or of royalty, bonus and rentals, creates respectively a royalty and a non executive interest in that state, but at least there are signs pointing that way. 3 Williams & Meyers Oil and Gas Law 304.09
WV: Mineral vs. Royalty Royalty as in place interest The royalty is the entire benefit that the mineral owner receives A reservation of all the oil rental to vest in the grantor the title to that thing, the beneficial use whereof has been reserved, namely, the oil in place. Toothman v. Courtney, 62 W. Va. 167, 58 S.E. 915 (1907) A reservation of all the rental or royalty to be derived from [the oil], compels the court to hold, by construction of the instrument, that it vests in him the title to that thing, the beneficial use whereof has been reserved, namely, the oil in place. Paxton v. Benedum Trees Oil Co., 80 W. Va. 187, 94 S.E. 472 (1917) Courts do not apply a bright line rule in construing the grant or conveyance of royalty Minerals in place e.g. in and under Non participating royalty interest e.g. when produced
WV: Mineral vs. Royalty Court s duty is to ascertain the true intent of the parties as expressed by them in the deed, lease or other written instrument under consideration. Davis v. Hardman, 148 W. Va. 82, 88 9, 133 S.E.2d 77 (1963) Understanding attributes of ownership is important What is a non participating royalty interest? A nonparticipating royalty interest owner, unlike the owner of the oil and gas in place, (1) cannot be charged with any of the costs of discovery and production, (2) has no right to do any act or thing to discover and produce the oil and gas, (3) has no right to grant leases, (4) has no right to receive bonuses, and (5) has right to receive delay rentals. Davis v. Hardman, 148 W. Va. 82, 133 S.E.2d 77 (1963)
WV: Tax Sales Severed in place mineral interests must be separately assessed as real property for taxation True NPRIs should not be assessed on the real property land books but often times they are so assessed In West Virginia, in place minerals which have been severed from the surface but are not separately assessed may be sold at a Tax Sale of delinquent surface property Prior to 1983, mineral owners did NOT have to be provided with notice of such sale After 1983, a mineral interest cannot be sold with the surface unless the mineral owners are also served with notice
WV: Land Books Land book audits can provide clues to: locate lost tracts; close gaps in the chain of title; acreage discrepancies; owner s intent; validity of tax deeds; etc.
WV: Tax Sales Peterson v. Hall, 57 W.Va. 535, 50 S.E. 603 (1905) Syllabus Pt. 3: When the surface of land is owned by one person, the oil in place by another, a sale for taxes in the name of the owner of the surface will pass also the oil owned by the other person, his estate not being charged on the tax books, under Section 25, c. 31, Code 1899. W. Va. Code 31 25 (1899): A tax deed shall pass such right, title and interest in and to said real estate as was vested in the person or persons charged with taxes thereon... and all such right, title and interest therein of any other person having title thereto, who have not in his or their own name been charged on the land book of the proper county or assessment district, with the taxes chargeable... (in effect until 3/6/1941)
WV: Tax Sales Peterson Facts Peterson leased 1,050 acres to South Penn on March 5, 1892 Peterson conveyed to Hall 64 acres of the 1,050 acres on April 15, 1894, subject to the lease and excepting ½ oil royalty After the deed, Peterson had no assessment for 64 acres Hall was assessed with 64 acres but the interest went delinquent in 1898 and was sold for taxes to Snodgrass in 1899 Snodgrass leased 64 acres to South Penn on November 19, 1901 (reserved ½ royalty and later conveyed to South Penn) Conflicting royalty claims: payments withheld, suit filed HELD: If oil & gas estate is not separately assessed at the time of severance AND the surface estate is subsequently sold by tax deed, the surface, oil and gas pass to the tax deed purchaser
WV: Tax Sales W. Va. Code 11A 3 28 (1941) (now 11A 3 30 & 62) Whenever the purchaser of any real estate sold at a tax sale, his heirs or assigns, shall have obtained a deed for such real estate from the clerk of the county court or from a commissioner appointed to make the deed, he or they shall thereby acquire all such right, title and interest, in and to the real estate, as was, at the time of the execution and delivery of the deed, vested in or held by any person who was entitled to redeem, unless such person is one who, being required by law to have his interests separately assessed and taxed, has done so, and has paid all the taxes due thereon. Who can redeem? Never specifically defined by statute W. Va. Code 11A 3 2(b) provides list of persons the Sheriff should notify, including lienholders and others who have requested notice in writing https://www.123rf.com/stock photo/redeem.html?mediapopup=39030844
WV: Tax Sales What about due process? Mennonite Bd. of Missions v. Adams, 462 U.S. 791 (decided June 22, 1983) Indiana statute required notice of Tax Sale to be posted in county courthouse and published for three weeks Notice by certified mail to property owner but not other interest holders (e.g. lienholders) Property was sold for delinquent taxes Appellant was mortgagee did not receive notice of sale or learn of the same until redemption period had expired Lower courts upheld the Tax Sale statute
WV: Tax Sales Mennonite Bd. Of Missions v. Adams, 462 U.S. 791 (decided June 22, 1983) U.S. Supreme Court held: The manner of notice provided to appellant did not meet the requirements of the Due Process Clause of the Fourteenth Amendment. (a) Prior to an action that will affect an interest in life, liberty, or property protected by the Due Process Clause, a State must provide notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objectives. Notice by publication is not reasonably calculated to inform interested parties who can be notified by more effective means such as personal service or mailed notice.
WV: Tax Sales Geibel v. Clark, 185 W. Va. 505, 408 SE.2d 84 (1991) Notice requirements discussed in Mennonite will only be applied prospectively The U.S. Supreme Court decision finding W. Va. Code 11A 3 2 (1967) is constitutionally invalid insofar as it permits the sale of real property without personal notice to affected owners and others having an interest in the property is not to be applied with general retroactive effect General retroactive application will have severely disruptive effects on land titles in West Virginia Tax sales of surface property occurring after June 22, 1983, will not take unassessed, severed minerals if the owners of such unassessed, severed minerals were not provided with actual notice of the sale If severed mineral owners are provided with notice of sale and they do not redeem, their interests will still be sold
WV: Tax Sales What about oil & gas leases? An oil and gas leasehold is chattel real and can be assessed and taxed as personal property in West Virginia. Harvey Coal & Coke v. Tax Com r, 59 W.Va. 605 (1905); Drainer v. Travis, 116 W.Va. 390 (1935) State v. Black Band Consol. Coal Co., 113 W.Va. 872 (1933) Issue: is a lease extinguished when land covered thereby is sold for delinquent taxes and lease is separately assessed and paid? Held: no lease survives because assessed and paid separately What if lease had not been separately assessed? In order for lease to be extinguished, lessee must be provided with notice to redeem Best practice to assess leasehold interests separately (both producing and non producing interests)
WV: Forced Pooling? Legislation covers deep wells only Oil & Gas Conservation Commission has authority to regulate under W. Va. Code 22 6 1(g), 22C 9 4 Procedural rules W. Va. Admin. Code Title 39, Series 2 Onondaga formation is the dividing line between shallow and deep Utica formation is below the Onondaga Marcellus formation is above the Onondaga Forced pooling bills recently proposed in legislative sessions failed by narrow margins Source: http://www.pic2fly.com/eagle+ford+stratigraphic+column.html
WV: Cotenant Development Must have 100% of interests leased before drilling. Devon Corp. v. Miller, 167 W. Va. 363 (1981) Development of minerals without consent of all cotenants is waste. W. Va. Code 37 7 2 What happens when you have unknown owners or missing heirs who are not leased?
WV: Missing Heirs File a missing heirs petition (W. Va. Code 55 12A 1 et seq.) Process by which the Court appoints a guardian ad litem to represent the missing heirs, allowing development to occur Policy: To facilitate development of coal, oil, gas, and other minerals, as part of the public policy of the State, by removing certain barriers to such development caused by interests in minerals owned by unknown or missing owners or by abandoning owners. Who can file? Owner of an interest in surface estate Owner of an interest in minerals sought to be developed Lessee, assignee, or successor to lessee under a valid lease
WV: Missing Heirs Unknown or missing owner = a person vested with title whose present identity or location cannot be determined All missing owners or abandoning owners having record title All heirs, successors and assigns of missing owners All unknown heirs, successors and assigns Source: http://imgarcade.com/1/milk carton missing clip art/
WV: Missing Heirs Diligence in ascertaining owners required Must attempt to identify the unknown owners, locate the missing owners, and contact the abandoning owners If still unknown/missing/abandoning owners after above, Special Commissioner appointed Signs a lease on behalf of the missing heirs Files a report with the Court recommending approval Court confirms the lease and funds are paid to the General Receiver Seven year cut off Within 7 years of lease being signed, missing persons can move the Court to reopen the matter in an attempt to prove their interest If after 7 years no one comes forward, Court shall begin the process of conveying the minerals and accumulated royalties to surface owner
WV: Is Change Coming? Senate Bill 576: co tenancy and joint development; forced pooling lite Co tenancy portion: Required consent of 3/4 of mineral owners to develop Owners of 1/4 minerals or more could prevent development Joint development portion ( lease integration ): Adjacent reserves under older leases added to pools for horizontal drilling, unless specifically prohibited by terms Senate approved on a 19 14 vote in March, 2017 Did not make it out of House s April, 2017 session Next year? http://marcellusdrilling.com/2017/03/wvs forced pooling lite bill passes senate heads to house/
Colorado
CO: Major Shale Plays
CO: Tract Indices Courthouse records are indexed by grantor/grantee parties, but private title warehouses have created county specific indices by tract of land Many abstracting companies rely solely on the Tract Index for compiling titles Various pitfalls: rarely catches estate documents, name changes/mergers, all interest in County, releases of mortgages/trust deeds, mere indexing error, etc. Good tool for checking gaps, quickly obtaining copies of instruments, etc.
CO: Codified NPRI Codified non participating royalty interest The creation of a non participating royalty interest and the attributes of the same (no right to lease, no right to develop, no right to share in bonuses/rentals or similar payments) is set forth in C.R.S. 38 30 107.5 Statute effective as of July 1, 1991, and not retroactive Prior to that date, there is some uncertainty as to whether a conveyance/reservation of an NPRI would be construed as a true NPRI or a full mineral interest
CO: Taxation and Tax Sales Similarities to West Virginia Statutory requirement for counties to separately assess severed minerals (C.R.S. 39 1 106) Counties often do not comply Differences from West Virginia Duty to assess minerals is currently on the Assessor (C.R.S. 39 5 101, 102) Severed mineral interests are not sold with delinquent surface A Tax Sale and issuance of a Treasurer s deed on surface from which minerals were previously severed will not pass such mineral rights unless the minerals are separately assessed and sold. Colo. Title Standards Sec. 4.2.1; Mitchell v. Espinosa, 125 Colo. 267, 243 P.2d 412 (1952); Johnson v. McLaughlin, 125 Colo. 298, 242 P.2d 812 (1952)
CO: Unrecorded Instruments When a recorded instrument contains a reference to another instrument which has not been recorded, such reference shall bind only the parties to the instrument and shall not be notice to any other person unless the referenced instrument is also recorded; no person shall be required to make inquiry or investigation regarding such reference. C.R.S. 38 35 108 May apply to the recording of Memoranda of Oil and Gas Leases, Operating Agreements, and other instruments traditionally not recorded in full Suggestion: treat Memo as a short form lease
CO: Affidavits of Extension For any mineral lease granted on or after March 28, 1967, an affidavit claiming extension of a lease beyond the primary or definite term must be recorded within 6 months after the expiration of said term; if affidavit is not timely recorded, the lease shall cease to be notice and have no more effect than an unrecorded instrument. C.R.S. 38 42 106 Slightly different rules for leases granted before March 28, 1967 Arguably applies to exercising options to extend a primary term
CO: Ballot Initiatives Source: https://vimeo.com/87310319
CO: Ballot Initiatives Section 1(1) of Article 5 in the Colorado Constitution reserves to the people of Colorado the power to propose laws and amendments to the constitution and to enact or reject them at the polls independent of the general assembly... During 2016 voters submitted a number of proposed initiatives directed at oil and gas industry Four of these initiatives advanced to the point of having titles set and the form of voter petitions approved Each of these initiatives essentially proposed to overrule Colorado Supreme Court s state preemption holdings in the City of Longmont and City of Fort Collins cases (discussed below) Source: http://www.levellers.org/fracking/
CO: Fracking Ban Cases Two sister cases City of Longmont v. Colo. Oil and Gas Ass n, 369 P.3d 573, 2016 CO 29 (Colo. 2016) City of Ft. Collins v. Colo. Oil and Gas Ass n, 369 P.3d 586, 2016 CO 28 (Colo. 2016) COGA brought suit against the respective home rule cities and sought injunctions against enforcement of each city s regulations relating to bans on fracking Slightly different arguments, but same rationale applied and same conclusion reached in both cases
CO: Fracking Ban Cases Do local governments have ability to regulate fracking? Colorado law of pre emption State Constitution recognizes the sovereignty of home rule cities: The people of each city or town of this state are hereby vested with, and they shall always have, power to make, amend, add to or replace the charter of said city or town, which shall be its organic law and extend to all its local and municipal matters. Such charter and ordinances made pursuant thereto in such matters shall supersede within the territorial limits and other jurisdiction of said city or town any law of the state in conflict therewith. A home rule ordinance will supersede a conflicting state statute in a matter purely of local concern If, however, the subject matter is of purely state, or mixed state and local, concern, the state law will supersede a conflicting home rule ordinance If no conflict exists between the state and local law, then both may coexist Three types: express, implied, or operational conflict
CO: Fracking Ban Cases Do local governments have ability to regulate fracking? No bright line rule: relative interests of the state and the municipality in regulating the particular issue must be considered on a case by case basis considering the totality of the circumstances The following factors should guide the court s inquiry: Need for statewide uniformity of regulation Extraterritorial impact of the local regulation Whether the state or local governments have traditionally regulated the matter Whether the Colorado Constitution specifically commits the matter to either state or local regulation.
CO: Fracking Ban Cases HELD: the Act and the COGCC s rules and regulations evidenced a strong state interest and control over numerous aspects of fracking and that each respective local regulation materially impedes the effectuation of the state s interest Take aways? Be aware of public opinion Be prepared for hurdles and delays Be ready to combat mis information Be the face of the industry http://gbphotos.photoshelter.com/image/i0000gxtmejxkmji http://www.cred.org/wp content/uploads/2017/01/20170125_cred_weekly snowboarder_lh_1024x512.png
CO: Voter Initiative
Texas
TEXAS: Retained Acreage Retained acreage clauses in leases can be potential minefields for litigation When did drilling end? How much acreage can the well hold? What are the field rules?
TEXAS: Retained Acreage After the termination of the primary term, each producing well Lessee has on the leased premises will continue to be governed by this lease, but only as to the area then assigned as a governmental proration unit to such well by the Railroad Commission of Texas In the absence of such an assigned proration unit, such area shall be forty (40) acres. After the termination of the primary term means this is the point in time a well must be drilled to hold any acreage. If the operator has a producing well at the termination of the primary term, and the operator thinks the well is holding 80 acres, but the RRC has not assigned a proration unit to the well, then the well will only hold, or retain, 40 acres.
TEXAS: Retained Acreage At the end of the primary term, or upon cessation of the continuous development of the lease premises required above, whichever is later, this lease shall terminate as to all lands covered herein, except as to those lands located within a governmental proration unit assigned to a well producing oil and gas in paying quantities. Within said producing governmental proration units, this lease shall also terminate at such time as to those depths lined below: (1) 100 feet below the stratigraphic equivalent of the deepest producing formation of said governmental proration unit, or (2) 100 feet below total depth drilled, whichever is the lesser depth. Now the point in time is either the end of the primary term, or cessation of continuous development, which could be years down the road. This clause also adds a depth limitation, meaning the proration unit is limited in size and depth.
TEXAS: Retained Acreage Endeavor Energy Res., L.P. v. Discovery Operating, Inc., 448 S.W.3d 169 (Tex. App. Eastland 2014, pet. denied) Also see Brandon Durrett, Fun New Ways for Density and Proration Rules to Bust Your Lease: Retained Acreage Clauses and Governmental Authority Language in the Wake of Three Recent Texas Cases, State Bar Oil, Gas & Energy Resources Law Section Newsletter (Spring 2016). At the end of the continuous development period, the lease terminates except as to those lands located within a governmental proration unit assigned to a well with each governmental proration unit to contain the number of acres required for obtaining the maximum producing allowable for the particular well.
TEXAS: Retained Acreage Field rules allowed for 80 acre proration units with up to 80 additional acres Lease covered 320 acres; base lessee drilled two vertical wells and assigned 80 acre units to each well Top lessee argued each well only held 80 acres because that was all the acreage that was assigned to each proration unit, even though each well could have held 160 acres Base lessee argued each well held 160 acres because the lease said each unit should contain the number of acres required to obtain the maximum producing allowable Eastland Court of Appeals ruled each well only held 80 acres; lease obligated base lessee to assign the maximum amount of acreage to each proration unit, which base lessee failed to do
TEXAS: Retained Acreage XOG Operating, LLC v. Chesapeake Expl. L.P., 480 S.W.3d 22 (Tex. App. Amarillo 2015, pet. denied) save and except that portion of said lease included within the proration or pooled unit of each well drilled under this Assignment and producing or capable of producing oil and/or gas in paying quantities. The term proration unit as used herein, shall mean the area within the surface boundaries of the proration unit then established or prescribed by field rules or special order of the appropriate regulatory authority In the absence of such field rules or special order, each proration unit shall be deemed to be 320 acres[.]
TEXAS: Retained Acreage Term assignment involving 1,625 acres, so when term expires, all acreage reverts to assignor except for proration units Assignee completed five vertical gas wells Field rules prescribed 320 acre proration units, but allowed for smaller fractional units Assignee designated 802 acres in proration units, or about 160 acres per well
TEXAS: Retained Acreage Assignor argued the assignee only retained 802 acres, and the remaining acreage reverted to assignor Assignee argued the proration units should hold 320 acres per well because the field rules allowed 320 acre units and the assignment defined a proration unit as the area prescribed by the field rules Based on this assignment, assignee argued the acreage designated by the operator to a proration unit does not control how much acreage is retained
TEXAS: Retained Acreage Amarillo Court of Appeals ruled in favor of assignee proration units held all 1,625 acres Court determined the assignment specifically defined a proration unit as the area prescribed by the field rules, which was 320 acres Court rejected assignor s argument that only an operator can designate or assign acreage to a proration unit
TEXAS: Double Fractions What is the double fraction issue? Used to show a fractional conveyance of the grantor s interest 1/3 of the usual 1/8 royalty 1/3 of 1/8 of the oil, gas and other mineral royalty that may be produced
TEXAS: Double Fractions Fixed Royalty An undivided one third (1/3) of an undivided one eighth (1/8) A set fraction or fractional royalty 1/3 of 1/8 will always equal 1/24
TEXAS: Double Fractions Floating Royalty An undivided one third (1/3) of an undivided one eighth (1/8) A fraction of royalty, which varies based on the size of the royalty negotiated in the lease 1/3 of [royalty] Changes each time there is a new lease with a different royalty
TEXAS: Double Fractions 1/8 the usual landowner s royalty in leases Estate misconception: landowner retaining only 1/8 of minerals in place after executing lease With the 1/8 royalty no longer the standard, issues have arisen over the interpretation of double fraction language
TEXAS: Double Fractions Jurisdictions vary, but usually 3 step process: Intent is examined by four corners If unclear, canons of construction If remains unclear, document deemed ambiguous and extrinsic evidence allowed Parties in double fraction cases typically agree document is unambiguous
TEXAS: Double Fractions Deed reserving one half interest in the [minerals] and describing the reservation as one half of the usual one eighth royalty [sic] (1/2 of royalties) Sundance Minerals, L.P. v. Moore, 354 S.W.3d 507 (Tex. App. Fort Worth 2011, pet. denied)
TEXAS: Double Fractions Deed reserved one eighth (1/8) interest in and to all of the [royalty], subject to a one eighth (1/8) of all royalties payable under the terms of [an existing lease], and further reserved oneeighth (1/8) of the usual one eighth (1/8) royalties provided for [in future leases], on the condition that such lease shall provide for at least a royalty on oil of the usual one eighth (1/8) and further reserving an undivided one sixty fourth (1/64) of production in the event of development by the mineral fee owner (floating royalty) Coghill v. Griffith, 358 S.W.3d 834 (Tex. App. Tyler 2012, pet. denied)
TEXAS: Double Fractions Deed granted one half interest in the minerals, one half of the 1/8 royalties under an existing lease and 1/16th of production payable out of the royalty provided in future leases (1/2 NPMI) Coates Energy Trust v. Frost Nat l Bank, 2012 WL 5984693
TEXAS: Double Fractions Hysaw v. Dawkins, No. 14 0984, 2016 WL 352229 (Tex. 2016) Will interpretation dispute Ethel Hysaw had three children and divided her lands in Karnes County, Texas, via her will She gave one tract (each differing in size) to each child in fee simple title, however, the devise of interest in royalty produced from the land differed
TEXAS: Double Fractions An undivided one third (1/3) of an undivided oneeighth (1/8) of all oil, gas or other minerals in or under or that may be produced from any of said lands Each child shall receive one third of one eighth royalty, unless there has been an inter vivos sale or conveyance of royalty on land willed to that child, in which case the children shall each receive one third of the remainder of the unsold royalty
TEXAS: Double Fractions Trial Court/Appellate Court Findings The proper construction of instruments containing double fraction language is a dilemma of increasing concern in the oil and gas industry, as uncertainty abounds, disputes proliferate, and courts have seemingly varied in their approaches to this complicated issue. Hysaw, 483 S.W.3d 1, 4 (Tex. 2016)
TEXAS: Double Fractions Holding The Supreme Court found that Ethel intended to treat her children equally and therefore her intent was to equally divide the royalties among the children. The four corners rule applies to wills as well as other non testamentary instruments conveying mineral interests. Holistic approach
TEXAS: Double Fractions Dragon v. Harrell, No. 04 14 00711 CV, 2016 WL 1238165 (Tex. App. San Antonio Mar. 30,2016) Fraction of royalty Follows Hysaw analysis reserved unto the Grantors... A free non participating interest in and to the royalty on oil, gas and other mineral in and under the hereinabove described property consisting of ONE HALF (1/2) of the interest now owned by Grantors together with ONE HALF (1/2) of the reversionary rights in and to the presently outstanding royalty...
TEXAS: Double Fractions Laborde Properties, L.P. v. U.S. Shale Energy II, LLC, No. 04 16 00168 CV (Tex. App. San Antonio Oct. 12,2016) Fixed 1/16 Follows Hysaw analysis There is reserved and excepted from this conveyance unto the grantors herein an undivided one half (1/2) interest in and to the Oil Royalty, Gas Royalty in and under or that may be produced or mined from the above described premises, the same being equal to onesixteenth (1/16) of the production.
Oklahoma
OK: Affidavits Marketable Title of Minerals Claimed Via Recorded Heirship Affidavits or Recitals Under 16 O.S. 67(A), a party who claims ownership of a severed mineral interest through an heirship affidavit recorded for 10 years in the county where the real estate is located acquires marketable title against claims adverse to such affidavit as long as the affidavit meets the requirements specifically laid out in 16 O.S. 67(C). o No instrument inconsistent with the affidavit could have been placed of record during the 10 year time period. 16 O.S. 67(C)(5) o For affidavits recorded before November 1, 1999, the 10 year period shall not expire until November 1, 2000. Id. o Purchasers of several mineral interest from parties claiming title under this section can also rely upon an heirship recital in any recorded instrument. 16 O.S. 67(B).
OK: Affidavits Sometimes an operator will not accept an affidavit of heirship to pass title OK title standards state an affidavit of heirship cannot be used as a substitute for a probate of a will In that case, we make a requirement to have the purported mineral owner go to court to obtain a judicial determination of heirship Until a court order is obtained, the operator will keep any funds attributable to that mineral interest in suspense
OK: Forced Pooling Frequently used by OK operators see 52 O.S. 87 Operators file an application for a drilling and spacing order with the Oklahoma Corporation Commission (OCC) The order will generally accomplish three things: Establish a geographical area to drill a well (i.e., Section 7) Designate the common sources of supply where the well may produce Establish the parties with the right to drill a well
OK: Forced Pooling Generally, the applicant will be the operator of the well, and other working interest owners and unleased owners will have the opportunity to participate Each party with the right to drill a well must make an election based on choices set forth in the forced pooling order Parties have 20 days from the date of the order to either participate in the drilling of the well or elect a cash bonus and royalty option 1/8 royalty plus $3,100 per acre (usually when parties fail to elect) 3/16 royalty plus $3,000 per acre 1/5 royalty plus $2,000 per acre 1/4 royalty and no bonus
OK: Forced Pooling Order may set forth the terms for participation in subsequent operations Often only those owners who elect to participate in the drilling of the initial well will be allowed to participate in subsequent wells If you elect to participate in the initial well, but not the second well, then you will not be allowed to participate in the third well, or the fourth well, etc.
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